How to set up a product pipeline under the new rules

Vol 6, PW 19 (20 Nov 02) Midstream & Downstream

COMPANIES PLANNING TO lay a Common Usage petroleum products pipeline should submit their proposal to the oil ministry, until the regulator is set up.

Within three months, the oil ministry or the regulator will invite Expressions of Interest from companies who want to book capacity in the pipeline. If no EOI is received within three months, the pipeline company will be free to go ahead and begin construction.

Yet it will be obliged to allocate a minimum 25% excess capacity in the pipeline design to accommodate any future demand. If during the public notice period, companies show a willingness to take capacity in the pipeline, its size and design must take into account such demands.

It's assumed this will happen after parties on both sides agree a 'take or pay' or similar type of contract. Whatever, ownership will remain with the pipeline company.

Tariffs for these new pipelines will be based on a Cost Plus Reasonable Rate of Return with a ceiling of 90% of the weighted average of the prevailing railway tariff for petroleum products. The tariff will be reviewed every two years.

Sadly, this new policy will marginalise state-owned Petronet-India, already facing trouble over its proposed 1,760-km Central India Pipeline. Petronet-India will no longer have responsibility for several proposed short-distance product pipelines less than 300-km from refineries or terminals.

These include the following proposed pipelines: Loni-Bholapur-Hazarwadi (HPCL terminal) Kanpur-Lucknow (IOC terminal); Bina-Jhansi-Kanpur (BPCL's planned Bina refinery) Delhi-Ghaziabad-Roorkee (IOC terminal) Vasco-Launda-Belgaum-Miraj (Oil PSU terminals at Vasco port).